US business inventories rose slightly below expectations in August

WASHINGTON, October 14, 2011: US commercial products rose less than expected in August, but there are signs that unsold goods are piling up at retailers amid stubbornly high inflation and rising interest rates.

Business inventories rose 0.8% after rising 0.5% in July, the Commerce Department said on Friday. Inventories are a major component of GDP. Economists polled by Reuters had forecast a 0.9 percent rise.

Inventories rose 18.2 percent year over year in August.

Retail inventories jumped 1.3% in August instead of 1.4% in August as estimated in the preliminary report published last month. It follows a 1.0% increase in July. Retailers are finding themselves overwhelmed with inventory, a task both to ease supply chain bottlenecks and to reduce demand for merchandise.

That could see businesses offer price cuts and discourage some from placing further orders until they clear unwanted stock, hurting manufacturing and the wider economy next year.

An oversupply of commodities and the Federal Reserve’s tight monetary policy stance have led many economists to expect a recession by 2023.

The Fed raised its policy rate from zero to 3.00% in March to 3.25% as it fights inflation. A fourth straight 75-basis-point interest rate cut is expected next month after data on Thursday showed inflation rose sharply in September.

Motor vehicle inventories increased 3.5% instead of 3.7% as estimated last month. They grew 3.5% in July.

Excluding automobiles in the gross domestic product calculation, retail goods rose an estimated 0.6 percent last month.

Wholesale goods rose 1.3% in August. Stocks at manufacturers decreased by 0.1%.

For now, inventories combined with a narrowing trade deficit were seen to boost GDP in the third quarter. The Atlanta Fed is estimating that GDP rose 2.9% last quarter after falling at a 0.6% pace in the second quarter.

Business sales rebounded 0.3% in August after falling 1.0% in July. At the August sales pace, businesses took 1.33 months to clear shelves, up from 1.32 in July.

Reporting by Lucia Muticani; Editing by Chizu Nomiyama

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